FSC: "Companies with Serious Industrial Accidents to Face Reduced Credit Lines... Reflected in Pension Fund Investments"

Follow-up Measures to the "Comprehensive Labor Safety Measures"
Insurance Premiums to Increase by Up to 15 Percent

Going forward, if a company causes a serious industrial accident, its bank credit lines will be reduced or suspended. Insurance premiums will also be subject to surcharges of up to 15 percent, and such incidents will affect investment decisions by pension funds.

The Financial Services Commission announced on September 17 that, as a follow-up to the joint “Comprehensive Labor Safety Measures” held on September 15, it will implement detailed action plans covering all financial sectors, including banking and insurance, policy finance, and capital market disclosures and evaluations.

As the first step, the Financial Services Commission will require banks to explicitly reflect a company’s history of serious industrial accidents in credit evaluation criteria and rating adjustment items. Once sufficient evaluation data has been accumulated, the second step will be to increase the weighting of operational and management risks within the credit evaluation items.

The “credit line loan agreement,” which functions like an overdraft facility for companies, will also be reduced. Currently, some banks stipulate that “if a news report predicting a significant decline in creditworthiness is confirmed as true,” or “if an investigation or legal dispute arises that could affect creditworthiness,” these are grounds for reducing or suspending credit lines. The Financial Services Commission will expand these requirements to all banks within the year. However, it will not recall general loans that have already been executed.

The authorities will provide the financial sector with various types of information from the Ministry of Employment and Labor regarding serious industrial accidents, and, based on this, banks will be encouraged to autonomously assess the credit risk of borrowers.

In the project financing (PF) guarantee screening by Korea Housing Finance Corporation, whether a serious industrial accident has occurred will also be considered. Currently, companies with a high risk of poor construction or safety accidents are penalized by 5 points in the evaluation. Going forward, this will be expanded to a differentiated deduction of 5 to 10 points depending on the severity. Additional measures, such as downgrading evaluation ratings (S, A, B, C, D) and restricting guarantees, will be implemented according to the level of legal violations.

Furthermore, a new additional guarantee fee rate will be introduced according to the level of penalty applied, and preferential guarantee fee rates for companies with excellent safety management will be increased.

Insurance premiums will also be subject to surcharges of up to 15 percent. Factors such as the occurrence of a serious industrial accident within the past three years and repeated accidents of the same type will be reflected in the premiums for serious accident liability insurance, construction insurance, workers’ compensation liability insurance, and surety insurance. Conversely, companies with certified safety standards will receive premium discounts of 5 to 10 percent.

Preferential financial programs at policy finance institutions will also be expanded. New offerings will include “preferential interest rates for new investments in safety equipment” (KDB), and “preferential products for companies certified for safety excellence, including interest rates, limits, and guarantee fees” (IBK, KODIT).

In the capital market, if a serious industrial accident occurs or there is a criminal conviction under the Serious Accidents Punishment Act, related ad hoc disclosures by the stock exchange will become mandatory. In addition, regular disclosures such as business reports and semi-annual reports will be required to include the status of serious industrial accidents and response measures.

ESG rating agencies must reflect serious industrial accidents in their corporate ESG evaluations. Revisions to stewardship codes and guidelines, which will require institutional investors such as pension funds to consider serious industrial accidents in their investment decisions, will be pursued in the first half of this year.

The Financial Services Commission stated, “To systematically manage financial risks related to serious industrial accidents, the financial sector will pursue a two-pronged approach: strengthening discipline for soundness management, while also implementing preferential measures for the prevention of serious industrial accidents.”